Be aware of other legal issues that might crop up if you work with a PEO or leasing company:
1. Financial instability: In a typical arrangement, the PEO collects money from clients for payroll, taxes, benefits and the like, then distributes it to the employees. If several clients fail to pay their bills, the PEO may have trouble meeting its obligations. Make sure the PEO is financially strong enough to weather the storm.
2. Thresholds: Many state and federal employment laws, including the Title VII discrimination laws, the Americans With Disabilities Act and the Age Discrimination in Employment Act, apply to firms with 15 or more employees. If your 10 employees are now co-employed by a company with 15,000 others, your company might be subject to those laws. While that provides legal protection your employees might value, it opens your business- to serious liability if an employee gets mad and sues. Make sure you have enough insurance.
3. Liability issues: Although early leasing companies claimed that they could protect client companies from employment-related liability, that's not likely. "There's not much case law on whether leasing companies will exonerate the client," says employment litigation attorney Anthony J. Carriuolo of Berger, Davis & Singerman in Fort Lauderdale, Florida. "But I expect that it will not. If you control the situation, you ought to be held liable." Indeed, the new Florida statute gets the leasing company off the hook for discrimination, harassment and other civil wrongs if it exercised no control over the day-to-day job, didn't authorize the wrongdoing and didn't know about it.
4. Workers' comp rating: Over the years, your company builds a reputation for safety that can reduce workers' compensation premiums. One of Carriuolo's clients who had an excellent record used an employee leasing company for several years, then terminated the relationship. The company then got rated by the state as a new employer, and therefore was charged a more expensive rate. While the risk of that happening might be worth the benefits of leasing, be aware of the possibility.
5. Fuzzy contracts: Most PEOs and employee leasing companies have stand-ard contracts. As an entrepreneurial firm, you may not have the leverage to change your agreement. But make sure your attorney examines it carefully to make sure it addresses every issue, clarifying who's responsible for what, with an eye to your state's law.
- Berger, Davis & Singerman, (954) 627-9906, firstname.lastname@example.org
- Steel, Hector & Davis LLP, email@example.com
- Utah Professional Licensing Board, firstname.lastname@example.org